Oil and La Frontera

A complacent view that’s developed here in the United States over the past 40 years is that oil in our own hemisphere can be regarded, functionally, as being our own. Interestingly, that’s probably a result of US production having peaked in 1971 at an average of 9.6 Mb/day. Because since that time it’s been better to print dollars and trade them for oil, than to worry too much about our own, declining supply.

Canada, Mexico, Venezuela and Brazil have each seen their own, individual oil production cycles play out over the past decades as well. But the first three of these have produced a non-trival quantity of oil for US consumption, during that time. Given that Mexico is currently experiencing a production crash, Venezuela’s oil industry has been damaged by government policies, and only Brazil is on the threshold of being able to increase production, it makes sense that the Oil and Gas Journal published a large piece on these three countries earlier this month: Special Report: Pemex, PDVSA, Petrobras: how strategies, results differ. I highly recommend the essay to my readers, which gives both a comprehensive update useful to oil watchers, but also provides very good background to those trying to learn about these issues. (I was also surprised to find out I’d been quoted in the article–perhaps O+G Journal could give me a free issue for the effort).stereo-view-of-rio-de-janiero

The Oil and Gas Journal backgrounder was also timely, because the stirrings that have been coming out of Brazil the past year with regard to its own oil supply and production appeared to finally reach clarification, just today. The New York Times is reporting that in the capital a new policy is emerging that will see Brazil take more full control over exploration, and extraction of its oil. Basically, that means much less outsourcing to Western oil service companies and their suite of expensive technologies. In my view, Brazil is signalling now that they are not to be relied on as a future exporter of oil, even though they are the one country remaining, in the Americas, that can probably increase their oil production. The pace of extraction, forthwith, is now likely to be at a slower pace.

In a way this echoes one of my previously stated views that, in the case of Mexico, all exports should cease immediately as they are headed to zero anyway, possibly as soon as late 2011. Granted, oil exporters eventually become addicted to oil revenues and lose the opportunity to leverage the oil resource for the sake of a more developed economy. Also known as the oil curse, it would take a country with a strong will and a much longer view to make a different–indeed better–decision. In Brazil, that appears to be the case. While the United States appears to be almost unaware that the oil supply on which it depends is either being lost to depletion, or domestic demand among oil producers, Brazil is now making the wisest choice of all: to produce at a slower rate, leaving more oil in the ground.


Photo: Underwood, Stereo View of Rio de Janiero.